Israel Post fails to collect tax on o'seas parcels

There is a tax loophole because the computer systems of the Israel Postal Company and the Israel Tax Authority are not connected.

"The postal systems are not computerized and do not allow delivery of a computer message to the tax authorities for enforcement purposes." This incredible response by the Israel Tax Authority reveals a gaping loophole that is allowing most overseas purchases by Israelis to evade the tax authorities.

A check by "Globes" reveals that taxes coming to the state treasury from overseas purchases are substantially smaller than the amounts actually due. The reason is that the computer systems of the Israel Postal Company and the Israel Tax Authority simply do not communicate with each other. Following a query from "Globes," the Tax Authority is promising that it will solve the problem and that the solution will be installed in the coming months.

This loophole is astonishing, given the fact that there has been a lively discourse in Israel in recent months about the tax ceiling on overseas purchases, which currently stands at $75. Many retailers are arguing that the tax ceiling constitutes discrimination against Israeli manufacturers on the one hand and that many consumers are trying in various ways to evade the tax ceiling on the other. In practice, most of the packages reaching Israel and passing though the Israeli post office (over 95% of the parcels reaching Israel) are not taxed at all and are checked only randomly, not systematically.

Sources in the delivery sector paint a picture of neglect, describing a situation in which parcels arriving through the mail are passed along by the Tax Authority's limited personnel without their content or value being reported. This contrasts with the individual reporting of every parcel required of the private delivery companies, which account for only 5-6% of the parcels arriving in Israel. The result is a large mass of taxable parcels on which no tax is paid. The consumers ostensibly profit by not paying tax, but the big loser is the state.

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How does this happen? The Tax Authority told "Globes" that the failure is mainly a matter of technology. "The activity of postal companies around the world, including Israel, is materially different from the activity of courier services and other commercial concerns. One of the differences lies in the messenger services' ability to receive a computer message from the overseas exporting companies and that fact that world's postal services are not computerized and do not allow a computer message to be sent to the tax authorities for enforcement purposes."

The Tax Authority added, "The Customs Administration and the Postal Company are developing a special system (scheduled to go on the air in the coming months) that will provide information to be translated into a kind of import declaration, thereby significantly reducing the existing enforcement gaps and therefore also the complaints about discrimination against various commercial concerns. When the system is in operation, the Customs Administration will be a groundbreaker in this matter in comparison with other countries around the world."

For the courier companies, the strict reporting requirements imposed on them for each package constitute discrimination. In September 2017, the Israeli Federation of International Freight Forwarders & Customs Clearing Agents contacted the minister of communications and the head of the Customs Administration and demanded the elimination of what it described as the illegitimate and illegal discrimination between the Israel Postal Company and customs agents in the release of imported goods in the framework of online trade. A letter sent by the organization cited the concrete loss of customs duties and the impairment of the customs agents' ability to compete with the Postal Company. The organization said the answer it received said that the matter was being handled.

The Antitrust Authority is expected to publish its final report and conclusions on the subject of personal imports. Its conclusions were published for public comment in late 2017, one of which was that "an inherent difficulty exists in the supervision of goods imported through the Postal Company by the Customs Administration and various regulators. On the other hand, the rules for the courier companies, whose share of personal imports is almost negligible, are fully and strictly enforced."

"The Postal Company is not to blame; it is the state that is ignoring the problem," a courier sector source told "Globes." "The state is not keeping up with the dramatic increase in the volume of online purchases. The work methods of the Tax Authority and the Postal Company are out-of-date. The result is a situation in which the Postal Company, the state's main channel for delivering parcels, has its own rules, i.e. no rules. As a courier company, we are obligated to report every parcel and pay the legally mandated tax, while the Postal Company conducts only sample checks involving an extremely small proportion."

The Postal Company responded, "The Israel Postal Company operates according to law and in accordance with instruction from the Customs Administration."